Gorkana Group

The four types of crisis

No two crises are the same, but law firm Freshfields has studied enough of them to identify four genres of the corporate crisis.  It’s useful as each type tends to leave a different patina on a company’s share price.  A behavioural crisis, such as “money laundering or anti-competitive conduct”,  has the greatest short term impact but shares tend to be quick to rebound, whereas operational crises that hit the core of a company’s business are more prone to a longer term negative impact. A corporate crisis is the most likely to be resolved fastest and information crises have a relatively low impact on share price.

When a crisis hits, half of the 78 companies Freshfields studied had a drop in share price and many did not return to pre-crisis levels within 6 months.  Serious business.  So, when you get the call, it is probably best not to navel gaze too much trying to understand what sort of crisis you’re dealing with, but unpack those plans you’ve prepared and rehearsed.  As Freshfields points out “Directors typically benefit from a window of 24 to 48 hours during which financial market reaction to news of a major reputational crisis will be relatively restrained. It’s often their last chance to take quick and decisive action before financial news bulletins take centre stage.”  So don’t delay and be consistent in your communications ensuring that you know who will be the public face and how you  will speak to multiple audiences.  Plenty of time for the post mortem later.

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